The aviation industry has felt the consequences of the maelstrom of political events in Ukraine like no other industry. Foreigners are refraining from traveling to Ukraine, and the purchasing power of Ukrainian citizens has fallen markedly because of the economic crisis and the devaluation of the national currency. All of this has eventually led to a fall in demand for air travel and reduction of the volume of operations of airports and airline companies. Oleksii Yakovets, the general director of the Master-Avia company, the operator of the Kiev (Zhuliany) airport, tells the Center for Transport Strategies how his company plans to survive in such difficult conditions.
How have the political events affected passenger traffic at the airport?
Passenger traffic reduced by approximately 10% during the first quarter of this year compared with the same period of 2013. The number of airplane departures has reduced by 30-35%. This is good from the perspective of airline companies: the figures show that the revenue load of each flight has increased while the number of flights has reduced. The leader is currently Wizz Air Ukraine, followed by Wizz Air Hungary in second and Transaero in third.
The level of activity of carriers, both on scheduled and charter flights, reduced markedly in the second quarter. This is due to, among other things, the reduced purchasing power of passengers, who receive their salaries in the local currency while vacations to Europe are priced in euros. The European currency was worth about UAH 10 last year, and it is now worth about UAH 15. Accordingly, the purchasing power of our citizens has reduced by 30-35%.
However, this is not the most important thing. The most painful issue for the industry is the increase of fuel prices. A ton of kerosene cost UAH 12,000-12,500 last year, but it has now reached UAH 18,000. Therefore, an airline company cannot lower ticket prices in the local currency. As a result, this season will be very difficult for the entire aviation business. On the one hand, resources are becoming more expensive while, on the other hand, the salaries of consumers remain unchanged. Therefore, demand for such services will reduce by about 50%.
Consequently, airline companies and airports should evaluate their resources and capabilities and primarily minimize costs. Carriers are reducing their number of flights in a bid to maximize the load factor of their aircraft and reduce the number of departing flights. For an airport, the number of flights is more important because it means earnings from fees and services. Nevertheless, we are ready for challenges. This is the reality of life, and it does not scare us. We will reduce costs. For example, a lot of money is currently spent on heating buildings and structures during the winter. We use gas to heat them. This year, we will introduce solid-fuel installations that will allow us to reduce consumption of gas by 50%, and we will begin burning slop oil - oil after processing, technical kerosene - as well as wood and coal.
How has the dollar exchange rate affected the company's operations?
If you look at how much we earned and calculate it at the current dollar/hryvnia exchange rate, the revenue in dollars is lower and the revenue in hryvnia is approximately the same as last year. However, we now have to service foreign-currency credits at the exchange rate of 12 UAH/USD instead of 8 UAH/USD. This creates additional difficulties because it is necessary to earn more hryvnia to buy foreign currency from the state to make settlements on our obligations.
Has the airport adjusted its plans and forecasts for 2014?
We did not plan to grow at a rate of 200% in 2014 as we did in 2013. In 2012, we sent and received about 860,000-900,000 passengers. In 2013, the figure was 1,826,000 - 50% outbound and 50% inbound. According to our estimates, passenger traffic should have increased by around 15%. However, the actual figures for the first quarter and projections for the third and fourth quarters inform us that we will reach a figure of 1.2-1.3 million people this year. This is 40-45% more than in 2012 and 30% fewer than in 2013.
The airport’s passenger traffic will reduce by 30% this year
Based on these figures, we will freeze our investment activities for now. We planned to build several hangars for different types of aircraft this year in order to obtain a full FBO with all the necessary equipment - parking lots, hangars, a business center, a new apron, etc. - but, unfortunately, we will not be able to do that now, and we will postpone implementation of these plans to next year.
Previously, you also planned to begin drafting a project for extension of the runway at the beginning of this year.
Unfortunately, the runway will also have to wait.
What will happen to the old terminal?
The increase of the passenger traffic through the airport and the expansion of the geography of flights entail development of a cargo transportation business. In connection with this, we have already begun equipping a center for processing cargo and mail at an assembly point near the old terminal. The operator is a Ukrainian-Israeli center that began operations in 2013. Of course, we also have a commercial warehouse, but it was built during the Soviet era and it is located outside the territory of the airport. The location of the warehouse did not matter when only domestic flights were performed from the Zhuliany airport, but the warehouse must now be in a restricted area because the flow of cargo now consists of export and import goods.
Therefore, as before, we plan to repurpose the old terminal into a cargo complex, with controllers and technical staff located on its second and third floors and cargo at its assembly point. It currently operates in a truncated format. In any case, we will have cargo traffic, and premises are needed for handling it. The old passenger terminal is quite sufficient for this.
Have airlines’ summer timetables been adjusted in connection with the current situation?
Yes, in particular, the intensity of flights by the Transaero airline company has reduced markedly. The carrier performed 35 flights a week - to Moscow, St. Petersburg, Yekaterinburg, and Ufa - at the peak of the season last year, but the number of its flights has reduced to 11 today. Flights to Siberia and St. Petersburg have been canceled and only flights to Moscow remain.
The UTair-Ukraine company operated flights to Donetsk four times per day and linked the capital with Kharkov, Lvov, Lugansk, and Odessa. Its domestic passenger traffic was quite comparable to that of the industry leader - Ukraine International Airlines - last year. However, only two of the four flights to Donetsk remain and flights to Kharkov and Lugansk have been discontinued. Yanair is trying to replace it on the Kiev-Odessa route. The fate the Kyiv-Lvov route is not yet clear because the load factor on the route is low.
Normalization of the situation in the eastern regions can revive passenger traffic. Then, the number of flights to Donetsk will increase and flights to Kharkov and Lugansk will resume. I think that passenger traffic will start to increase within three or four months if everything stabilizes.
The Air Onix airline company has stopped operating flights, but two aircraft from its fleet were at the airport. Did the leasing company manage to recover them?
The Air Onix airline company owed the airport about UAH 700,000, and it is true that two airplanes - a Boeing 737-400 and a Boeing 737-300 - were at the airport. The lessor came to the airport to take the airplanes from Ukraine. We agreed to prepare the airplanes for their flights - to service and refuel them - and the owner of the airplanes agreed to pay the debts of the carrier. As a result, both airplanes successfully flew out of Ukraine and Air Onix has no debts to the Kiev (Zhuliany) airport.
Ukraine is preparing to sign an agreement on a Common Aviation Area with the European Union. How do you assess this step?
This agreement still has to be introduced and implemented fully. In addition, it is necessary to remove visa barriers for passenger traffic to increase. Although, on the other hand, the cost of tickets for international and domestic flights operated by domestic carriers is now about the same. So, why not increase competition and prevent foreign companies from entering the domestic market?
In that case, how do you assess the State Aviation Service’s initiative to reduce air navigation charges on domestic routes?
This can be viewed as an attempt to think of something to reduce carriers’ costs. However, such measures are unlikely to have a significant impact on ticket costs. For example, the Ukrainian State Air Traffic Services Enterprise’s air navigation charge for a Kiev-Simferopol flight is about USD 140. This is not a figure that can significantly reduce costs against the backdrop of payments for kerosene and services. An airplane burns 3 tons of fuel on this route, and that costs USD 4,500 even at the old price.
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Such measures have already been taken when Heorhii Kirpa headed the Ministry of Transport. The idea was good, but it could not be implemented. In addition, these steps were disastrous for the Kiev (Zhuliany) airport because the share of domestic flights in the overall balance sheet of the Boryspil airport was 7% at the time but it is 97% for us. Many companies moved to the Boryspil airport after reduction of fees there, leaving us with nothing. Although the idea was intended to revive the Ukrainian air transport market, many regional airports were unable to recover.